STR/MTR in a Commercial Property?

Question

Hi everyone, I am a newer investor with 4 STR/MTR units and looking to scale.

Has anyone operated STR/MTR units in a small commercial building? For example, a building with 12 doors and operating some of the units as MTR/STR and other units as LTRs? Or just all of them as STRs or MTRs.

I understand it depends on the township, and when I look up certain ordinances it seems they only address residential buildings ( 1-4 units) needing a permit, primary residence, etc.

Wanted to see if anyone out here has had experience. It seems you may have to change zoning to be able to operate STRs out of a commercial building?

Thanks in advance!

Andrew Steffens · Answer

Definitely check with the local authority first and foremost.

I do manage some multi families where the owner manages some LTR units and we manage the STR, so that is definitely possible and not unusual at all, it is a hedge as they are different market segments.

Michael Baum · Answer

Hey @Aubri Paredes. So technically it will depend on the zoning if it is considered commercial. I am assume you are not thinking of using a 12 rollup door warehouse? :)

So check the zoning of any properties. Oftentimes, some municipalities don't allow residential in commercially zoned properties.

I am guessing you will find a an apartment building with 12 units zoned R12 or more or whatever special zoning codes they use for multifamily.

It will all come down to the STR regs in the area. Mixing STR and LTR can work in a building like that. You get the more reliable LTR revenue that could support the building costs and the STR revenue to boost profits.

It would make a nice package for a DSCR loan.

@Lindsey Mannix has a good point to get the with planning/zoning department and get the rules. Maybe bring a few example properties to show what you are thinking of buying.

Also, many cities/towns/counties have the data for each property online in a searchable database. That will tell you the zoning specifics without having to call or go in.

KiKi Chase · Answer

Hi Aubri! My fiancé and I have two arbitrage units in a small commercial building of about 20 units. We do not run into any issues, but I would make sure your area doesn't have any restrictions on STRs! We also make sure to tell the tenants surrounding those units to let us know if they have any issues with short term tenants. We haven't has any issues yet!

Lindsey Mannix · Answer

Hi Aubri,

I did something similar but to ensure we were in compliance with local laws, I called the local county building and planning department and had a meeting with them to discuss my plans (this was done during the purchase process) to get approval. I'd suggest doing the same!

~ Lindsey

Sarah Kensinger · Answer

You can check the zoning but if it's a commercial building that's an apartment complex or old hotel turned residential, you can do whatever and the city can't make you come under the permits they require for non-commercial STR properties. No need to change zoning if it's already a LTR property.

The only issues you may come across is lending. If it's a LTR now you should be able to purchase the property with a DSCR loan, the issue is when the property splits between STR/MTR and LTR. So, if you decide to sell later the next owner would have problems getting a loan, unless they are a cash buyer. As of now, most banks don't recognize the split model and only run numbers on the LTR units since they feel those units are guaranteed income.

Other than that, many people have run properties this way and been successful at it. Just make sure your LTR tenants keep their units nice, so your STR units' market well.

STR/MTR in a Commercial Property?

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